Implied Default Probability and Credit Derivatives

Recently many kinds of credit derivatives are traded in the market. The default probability implied in the market becomes important to price some credit derivatives. Also it is useful for managing the credit risk because it includes the market information. In this paper we show how to calculate the implied default probability in the default swap market or the defaultable bond market.This paper is developed from author’s master thesis (Matsumoto, 2000), Graduate School of Systems Management, the University of Tsukuba.